Cross-Border Risk Transmission By a Multinational Bank

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Title:Cross-Border Risk Transmission By a Multinational Bank
Creators:
Derviz, Alexis
Journal or Publication Title:
AUCO Czech Economic Review, 1, 1, pp. 87-112
Uncontrolled Keywords:multinational bank, managerial effort, audit, credit, foreign shock

Abstract

A model of international banking, with a stress on manager human-capital (borrower monitoring) and majority-shareholder human capital (manager auditing) is constructed to study the impact of exogenous shocks in one country on credit creation in another. I show that the presence of the two cited categories of non-transferable skills in banking technology reduces the role of the standard portfolio-diversification motive in the cross-border transmission of disturbances. At the same time, this bank-specific market friction creates a separate channel of shock propagation, a function of bank shareholder and manager incentives. It can even happen that the impact of an exogenous shock on credit has a different sign in the “relationship” as opposed to the “arm’s-length” banking environment. This phenomenon, caused by the marginal effect of the human-capital management in the bank operation, is present in those bank branches with relatively small loan volumes. When the loan volume is large, the direction of the reaction of the manager-auditing bank to shocks abroad is the same as that of an arm’s-length lender.

Official URL: http://www.ceeol.com/aspx/issuedetails.aspx?issueid=8D4101D5-8C79-4EAF-B226-7B0C366B93DB&articleid=5B7CAB14-D5EC-40C2-B02E-1018A78712E3

Title:Cross-Border Risk Transmission By a Multinational Bank
Creators:
Derviz, Alexis
Uncontrolled Keywords:multinational bank, managerial effort, audit, credit, foreign shock
Subjects:H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
H Social Sciences > HF Commerce
Divisions:Section of external journals > AUCO Czech Economic Review
Journal or Publication Title:AUCO Czech Economic Review
Volume:1
Number:1
Page Range:pp. 87-112
ISSN:1802-4696
Publisher:Charles University
Related URLs:
URLURL Type
http://auco.cuni.czPublisher
http://avi.lib.cas.cz/node/183Publisher
ID Code:4301
Item Type:Article
Deposited On:01 Jun 2009 18:32
Last Modified:01 Jun 2009 16:32

Citation

Derviz, Alexis (2007) Cross-Border Risk Transmission By a Multinational Bank. AUCO Czech Economic Review, 1 (1). pp. 87-112. ISSN 1802-4696

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